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Efficient nash equilibrium under adverse selection

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1313.pdf (1.397Mb)
Date
08/2013
Author
Diasakos, Theodoros
Koufopoulos, Kostas
Keywords
Insurance market
Adverse selection
Incentive efficiency
HG Finance
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Abstract
This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (QJE, 1976). We propose a simple extension of the game-theoretic structure in Hellwig (EER, 1987) under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson (ECMA, 1983).
Citation
Diasakos , T & Koufopoulos , K 2013 ' Efficient nash equilibrium under adverse selection ' School of Economics & Finance Discussion Paper 1313 , no. 1313 , University of St Andrews .
ISSN
0962-4031
Type
Working or discussion paper
Rights
(c) 2013 the authors
Collections
  • University of St Andrews Research
URL
http://ideas.repec.org/p/san/wpecon/1313.html
http://www.st-andrews.ac.uk/economics/repecfiles/4/1313.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1944825
http://www.carloalberto.org/assets/working-papers/no.215.pdf
URI
http://hdl.handle.net/10023/4089

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